By Katherine S. DiDonato, Esq.  of Shustak Reynolds & Partners, P.C. posted on Thursday, July 21, 2016.

Kara Siegel

Senior Attorney

A recent study by Fidelity Investments shows advisers encounter many unwelcome surprises when they decide to go independent or switch brokerages. The two main difficulties relate to the administrative responsibilities and back-office details the advisers must address and work through. This includes an overwhelming amount of paperwork that must be executed and processed and changes in the investment products and services available at the new firm. 

Advisers have trouble grasping how much paperwork is actually involved in the transfers until they are in the thick of making the calls to their clients, repapering their accounts, and actually moving the investments. This is especially true for advisers who come from mostly paperless offices; they are usually caught off guard by the transfer process, which is still mostly rooted in paper format. Other surprising roadblocks include the length of time it takes to transition their clients, and the challenges in preparing clients to switch to another firm.

Technology issues are also a big concern, as advisers struggle to integrate their business with their new firm’s technology platform, and the longer than anticipated time required to learn the systems and transfer investments over. Recruiters agree that no matter how much they prepare advisers for the realities of switching firms, it is still a shock.

Other surprises come in the form of potential legal issues arising from the transition. The prior firm may have a surprisingly hostile reaction to the adviser’s departure and aggressively pursue clients. Certain firms may say inaccurate or downright defamatory things about the departing advisor and circumstances surrounding his departure from the firm. In some instances, the prior firm may even pursue litigation against the adviser if it believes he or she failed to follow the broker protocol in a protocol-to-protocol firm transition or misappropriated confidential client information or trade secrets.   

As to clients, advisers may be surprised both by the clients who choose to come with them, and the clients who stay. Although advisers typically take between 85-90% of the business they want to take when leaving, the composition of that business may not be what was expected.

Advisers know there is an increased workload when transitioning, but the overall extent of the work that must be done is usually more significant than anticipated. This is especially true for advisers who move to an independent firm, as the new responsibilities and workload that now fall on them and their team is significant. The work is especially challenging in the first few weeks of the transition, and advisers can expect to spend a couple of months working around the clock, no matter how much advanced preparation they have done. Advisers must also change their mindset about their daily duties and roles, as their job during the transition is no longer solely about serving the clients.  

Advisers face many hurdles and challenges when switching firms, and both their prior and new firms may add to the stress and work involved to successfully transition a book of business. Shustak Reynolds & Partners, P.C.’s FINRA and SEC attorneys have extensive experience representing registered representatives and investment advisors in a variety of securities-industry matters, including representing advisers before, during, and after their transitions to new firms. Contact us today for a confidential consultation.

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